The Washington State Gambling Commission has notified Valve Corporation that it must immediately stop allowing the transfer of virtual weapons known as “skins” for gambling activities through the company’s Steam Platform.

The Gambling Commission contacted Valve Corporation in February 2016 regarding its Counter Strike: Global Offensive (CS:GO) video game and players ability to use “skins” in online gambling activities contrary to state gambling laws. At the time, the Gambling Commission attempt to learn about Valve’s operation of “skins” on its Steam Platform to determine if any additional action was needed.

Since February 2016, “skins” continue to be used as consideration for illegal gambling activities on third party websites. “Skins” transactions are usually facilitated within Valve Corporation’s Steam Platform. All third party gambling sites have Steam accounts and use the Steam platform to conduct their gambling transactions. These gambling transactions are automated and performed by a software program or “bot,” and have proliferated so much that a recent market report by Esports Betting Report indicates that one specific gambling website, CSGO Lounge, brought in approximately $1 billion in “skin” gambling between January 1st and, August 1st this year alone.

Based on the information it has gathered, the Gambling Commission directed Valve Corporation to stop facilitating the use of “skins” for gambling activities through its Steam Platform. The Gambling Commission expects Valve to take whatever actions are necessary to stop third party websites from using “skins” for gambling through its Steam Platform system, including preventing these sites from using their accounts and “bots” to facilitate gambling transactions.

Valve Corporation has until October 14, 2016 to respond and explain how it is in full compliance with Washington’s gambling laws or it will risk having the Gambling Commission take additional civil or criminal action against the company.

Washington State Gambling Commissioner Chris Stearns said “In Washington, and everywhere else in the United States, skins betting on esports remains a large, unregulated black market for gambling. And that carries great risk for the players who remain wholly unprotected in an unregulated environment. We are also required to pay attention to and investigate the risk of underage gambling which is especially heightened in the esports world. It is our sincere hope that Valve will not only comply but also take proactive steps to work with the Commission on future measures that will benefit the public and protect consumers.”

The Washington State Gambling Commission was created to protect the public by ensuring that gambling is legal and honest.

The press release raised several issues. First, the WSGC began investigating skins gambling involving CS:GO in February 2016, a few months before betting scandals rocked CS:GO. In a letter sent to Valve CEO Gabe Newell on 27 September, the commission wrote:

The Washington State Gambling Commission contacted Valve Corporation in February 2016 about its Counter Strike: Global Offensive (CS:GO) video game product. Our agents visited with Liam Lavery, Valve Corporation's in house counsel, on February 17, 2016, about the Gambling Commission's concerns that Valve Corporation may be facilitating unlawful gambling through its CS:GO video game as it is used through Valve Corporation's online Steam Platform. Our main focus was the use of virtual weapons known as "skins" and how they were being used as virtual currency. "Skins" could be bought, sold, and traded through virtual marketplaces inside and outside Valve Corporation's Steam Platform. Then, these "skins," that could only be acquired through CS:GO and the Steam Platform, were being used as consideration on third party gambling websites.

Next, the Washington State Gambling Commission came out and flatly stated that skins gambling is illegal. In the letter to Newell, the commission described the activities:

It is now well known that there are third party websites offering illegal gambling activities where "skins" are used as consideration to enter the illegal gambling activities where "skins" are used as consideration to enter the illegal gambling contests. Players are allowed to wager their "skins" in different types of games, including lotteries, raffles, match wagering, and virtual slot machines. Players then can win prizes by winning games of chance.

Third, the commission ruled that just because Valve does not run the gambling sites themselves does not mean the company bears no responsibility for the actions of the third party gambling operations. The letter to Newell gives greater detail:

"Skins" transactions are usually conducted within Valve Corporation's Steam Platform. All third party gambling sites have Steam accounts and use the Steam platform to conduct their gambling transactions. These transactions are usually automated and performed by a software program or "bot".

Valve Corporation appears to have rules against the use of "bots" in its User Agreement. However, it has not strictly enforced its user policy preventing the use of "bots" and continues to knowingly allow third party websites to conduct gambling transactions through its Steam Platform. Therefore, Valve Corporation aids in these gambling activities because it knowingly allows players and third party gambling sites to use its Steam Platform to transfer "skins" for gambling activities.

As a personal aside, I find the thought of a gaming company in legal trouble for not abiding by its User Agreement rather amusing. The letter continued:

Valve Corporation must cease violating Washington State gambling laws. Valve Corporation must immediately stop facilitating the use of "skins" for gambling activities through its Steam Platform. Valve Corporation must take whatever actions are necessary to stop third party websites from using "skins" for gambling through its Steam Platform, including preventing these sites from using their accounts and "bots" to facilitate gambling transactions.

I assume the WSGC's order would include shutting down third party sites that launder skins into real life currency such as OPSKINS.com, which Valve allowed to remain open.

The press release did not go into the consequences for Valve if the company fails to comply with the WSGC's edict. The state of Washington has advantages in forcing compliance that other states lack due to the fact that Valve's headquarters is located in Bellevue, Washington:

Valve Corporation has until October 14, 2016 to provide me a response with supporting evidence showing the steps it has taken to bring the company into full compliance with Washington's gambling laws. If Valve Corporation fails to comply, the Washington State Gambling Commission will exercise its authority under state gambling laws. Our actions could include: seizure and forfeiture of any property related to illegal gambling activites; forfeiture of Valve Corporation's corporate charter; and possible criminal charges against employees for facilitating the above-referenced illegal activities.

Not so funny anymore, and not just due to the threat of incarceration. What happens if the WSGC decides to seize Steam, since the platform is so crucial to the operation of skins gambling? Do all the players lose access to their game libraries?

Last month I wrote about how a U.S. federal judge did not see gambling involving pixels as gambling. But not only do businesses have to follow federal law, but they also must follow the laws of the 50 individual states as well. At this point, Valve is facing criminal liability as well as civil lawsuits in Florida and Connecticut (a third lawsuit in Washington state was dismissed yesterday). The next move is up to Valve. We have one more week to see the company's next move.